Strategy and first half 2002 results

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Strategy and first half2002 results
September 2002
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Disclaimer
The following presentation includes "forward
looking information" within the meaning of
Section 27A of the US Securities Act of 1933, as
amended, and Section 21E of the US Securities
Exchange Act of 1934, as amended. Certain
statements included in this presentation,
including without limitation those concerning (i)
BG Group's strategy, outlook and growth
opportunities (ii) positioning to deliver future
plans and to realise potential for growth (iii)
the 2003 and 2006 long term growth targets
including certain financial targets (iv) cost
targets (v) plans for capital investment and
expenditure (vi) the projects expected to
contribute to the fulfillment of the growth
targets (vii) commercialization and project
delivery activities (viii) BG Group's
positioning to deliver its future plans and to
realize its potential for growth (ix) demand for
gas (x) liquidity and capital resources and
(xi) statements preceded by believes,
expects, anticipates, plans, intends or
similar expressions, contain certain forward
looking information concerning BG Group's
operations, economic performance and financial
performance. Although BG Group believes that the
expectations reflected in such forward looking
statements are reasonable, no assurance can be
given that such expectations will prove to have
been correct. Accordingly, results could differ
materially from those set out in the forward
looking statements, as a result of, among other
factors, (i) changes in economic, market and
competitive conditions, including oil and gas
prices (ii) success of implementing business and
operating initiatives (iii) changes in the
regulatory environment and other government
actions including UK and international
corporation tax rates (iv) the failure to ensure
the safe operation of BG Group's assets
worldwide (v) implementation risk, being the
challenges associated with delivering capital
intensive projects on time and on budget,
including the need to retain and motivate staff
(vi) major recession or significant upheaval in
the major markets in which BG operates (vii)
commodity risk, being the risk of significant
fluctuations in gas and/or oil prices from those
assumed (viii) risks encountered in the gas and
oil exploration and production sector in general
(ix) fluctuations in exchanges rates (x)
business risk management and (xi) the Risk
Factors included in BG Group's Annual Report and
Accounts 2001. BG Group does not undertake any
obligation to update or revise any forward
looking statements. This presentation does not
constitute or contain an invitation or inducement
to any person to underwrite, subscribe for,
otherwise acquire, or dispose of any ordinary
shares or ADRs or other investments in BG Group
plc or any other entity, nor does it advise any
person to do any of the foregoing and this
presentation must not be relied on in any way in
connection with any investment decision.
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The Integrated Gas MajorAgenda

• Strategy and targets
• Business highlights
• Financial performance
• Outlook
• Conclusions

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The Integrated Gas Major

• The business environment favours gas
• Our strategy is unique
• We have a balanced portfolio
• Our costs are being transformed
• BG offers high growth with improving returns

Delivering exceptional value
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StrategyWorld energy consumption
Quadrillion Btu
CAGR 2000-2020
Oil
Oil 2.2
Gas
Gas 3.2
Coal
Coal 1.8
Renewables
Renewables 2.0
Nuclear
Nuclear 0.4
Source EIA International Energy Outlook 2002
Gas is the fuel of choice
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StrategySummary
The Integrated Gas Major
Builds markets
Serves customers
Finds reserves
Develops integrated plays
Delivering exceptional value to shareholders
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BG Group strategyBusiness model
LNG
Transmission
Power
New Business
Markets
Enabling
Resources
Developing the gas chain
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BG Group strategyGeographical balance
Kazakhstan
UK
India
Trinidad
Egypt
Southern Cone
Six core areas
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StrategyBusiness balance
Upstream/downstream
Oil/Gas
Source Deutsche Bank, 2001E-2006E capex
Similar upstream/downstream balance but BG focus
on gas
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TargetsProduction growth rates
CAGR 1999 - 2003
CAGR 2000 - 2006
EP 17 11 LNG 50 42 TD 32 17 Power
10 -
Exceptional growth
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TargetsFinancial framework

• Investment 2.3 billion for 2002/2003
• 1 billion per annum 2004 - 2006
• ROACE 10 - 11 in 2003
• 14 in 2006
• Gearing expected to remain below 25
• Not adjusted for tax increase

Improving Returns
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Financial frameworkEconomic returns

• Upstream IRR of 15 at mid cycle prices
• Upstream has to make 8 IRR at 10 oil price
• Downstream IRR of 8
• No cross subsidies between business segments
• Strict investment discipline will drive financial
  returns

Improving Returns
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TargetsCost Targets
Unit Capex in 2003
Unit Opex in 2003
EP 3.2/boe (FD) 2.4/boe Distribution 650/cus
tomer 10,800/mmcm LNG 190/tpa 5.2/t Power 55
0/kW 36/kW

2006 target remain top quartile
Low cost base
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Business highlightsEA performance history
Wells drilled success ratio
100
75
71
71
58
35 wells
40
31 wells
20 wells
15 wells
14 wells
13 wells
67 success over five years
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Business highlightsReserves growth
2001 proved reserves finding cost of 0.61 / boe
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Business highlightsReserve / resource base
Reserves/Production
Risked Exploration (1211 mmboe)
63 Years
6899 mmboe
Unbooked Resources (1539 mmboe)
52 Years
5688 mmboe
Probable Reserves (2683 mmboe)
38 Years
4149 mmboe
Proved Reserves
13 Years
1466 mmboe
Based on 2001 production
Reserves/Resources as at 31/12/2001
Wealth of growth opportunities
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Business highlightsEP unit costs
EP cost performance is top quartile
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Business highlightsEP production growth
EP production CAGR 16.3 1996-2001
(000 boe/d)

• Target to 2003 trebles 1996 production
• 28 growth in H1 2002. Growth in 2002 should
  exceed 20
• 2003 target adjusted for acquisition / disposal

530
440
298
140
A business with momentum a proven track record
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Business highlightsLNG production growth
LNG production 0.75 mtpa in 2001

• ALNG 2 in operation in August 2002
• ALNG 3 due mid-2003
• Egyptian LNG, ALNG 4 and Tangguh to 2006

(mtpa)
6.0
1.9
0.7
A business with momentum a proven track record
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Business highlightsPower capacity growth
Power capacity CAGR 13.1 1996-2001

• San Lorenzo online 2002
• Delivers 2.5 GW target
• No targets set for 2006 projects need to satisfy
  returns criteria

(GW)
2.5
2.33
1.26
A business with momentum a proven track record
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Business highlightsTD throughput growth
TD throughput CAGR 35.7 1996-2001

• Focus on high growth markets
• Comgas prime driver of targets
• MetroGAS position uncertain
• Profitability is key

(bcm/yr)
20.0
15.3
10.6
2.3
A business with momentum a proven track record
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Business highlightsTotal operating profit 833
million
5 years of sustained performance
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Financial performanceFirst half 2002
1H 2002 million
vs 2001
Turnover 1,364 3 Total operating
profit 436 u/c Earnings 260 5 EPS before tax
increase 7.4p 4 EPS after tax increase 5.3p -
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Excluding exceptional items
Resilient performance growth offsets weaker
prices
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Financial performanceFirst half 2002
Change
million
EP 353 14 LNG 4 - 84 TD 21 - 56 Power 65
10 Other activities - 7 61 Operating
profit 436 u/c
Resilient performance
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Financial performanceFirst half 2002 E P

• Production volume 28 (66.9 mmboe)
• Unit lifting costs - 5
• Unit operating costs 4
• Unit gross profit 10 (at constant prices)
• Operating profit 14

Strong profitable growth
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Financial performanceFirst half 2002 LNG
1H 2002 million
1H 2001 million

• Shipping and marketing - 1 11
• Business development - 8 - 7
• Atlantic LNG 13 21
• Operating profit 4 25

Developing new business
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Financial performanceFirst half 2002 T D
1H 2002 million
1H 2001 million

• MetroGAS - 6 34
• Comgas 13 - 2
• Other 14 16
• Operating Profit 21 48

Comgas the driver for T D
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Financial performanceCapex and financial position

• Capex in first half 889m
• Net debt 945m
• Gearing 22
• Gearing excluding MetroGAS 16
• Interest cover 11 times

Financially strong
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Outlook2002 - 2006
Lake Charles
Karachaganak
Buzzard
Premier Power
San Lorenzo
India EP
Juno
ECMA
ALNG 4
ALNG 2
NCMA
Kashagan
ALNG 3
Egyptian LNG
Vorwata
Hasdrubal
Bolivia EP
Simian/ Sapphire
Tangguh
Barca power
Scarab/Saffron
Southern Cross
Comgas
2002 onstream
2003 onstream
2004 - 2006
Key projects for 2003 - 2006 targets
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OutlookOpportunities beyond 2006
Caspian
Kashagan full field
Karachaganak gas
White Zone/Faroes
Trinidad gas
Pipavav LNG
Brindisi LNG
Gujarat Gas
Thailand / Cambodia JDA
ALNG 5
Barca expansion
Mahanagar Gas
Red Chain
Iran LNG
Spain
Sucat
New Distribution India
Jugurtha
WDD gas
Margarita/ Itau to Brazil
Comgas
Philippines LNG
Gaza Gas
Brazil exploration
Egyptian LNG 3
Philippines TD
Bolivia - Brazil Expansion
MetroGAS
Tangguh 2
Extending the growth trajectory
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Conclusions

• Unique gas chain strategy
• High growth with improving returns
• Resilient performance in first half
• On course for 2003 and 2006 targets
• Excellent prospects

The Integrated Gas Major